If you’ve been in the investment business for a while, you must have wondered about what type of investor you are. If you haven’t paid attention to this topic, I think you should because knowing the type of investor that you are will help you to ascertain if you need to change your principles and attitudes so as to earn more from the stock market.
Also, if you find out that you belong to the ideal group of investors, that will boost your confidence, and you need all the self-confidence you can get to be able to take calculated risks which are required in the investment business.
Below are the three factors that will guide you into discovering your style of investment or the type of investor that you are.
What Type Of Investor Are You?
1. Are You a Risk-taking or An Anti-risk Investor?
In the world of investment, the highly required attribute is the ability to take calculated risks. This means that if you do want to excel in this business, you must be risk tolerant; you must be willing to buy stocks or invest in businesses that have a high probability of generating high ROI as well as the probability of collapsing.
You are a risk-taking investor if you are very comfortable with how rapid the market changes, you are not afraid of investing your money into businesses that have a tiny chance of surviving but can generate very high returns. You are an anti-risk investor if you only play safe. You invest in bonds that have about a 70% chance of bringing you profit.
Here is the thing, risk-tolerant investors may have a higher possibility of losing their money but at the same time, they have a high possibility of having fat bank accounts.
The best way to find out where you belong is to look back at the type of investments that you’ve made so far. If you do that and realize that you are an anti-risk investor, then, you will need to buckle up.
2. Are You an Active or Passive Investor?
Some investors are active when their investment is concerned. After locating an investment opportunity, they get involved with making research and analysis to know if it will yield dividends, and how much. They also ensure that decision is made as soon as possible, and go for the investments with premium risk.
Passive investors are the direct opposite. They set up investments and hand them over to professionals who continue with the process. They prefer doing passive investments such as index funds that require no regular maintenance.
3. Do you prefer working with humans or robots?
There’s nothing wrong with both choices but knowing your best mode of operation will help you to understand your investment personality better. As earlier said, there’s nothing bad working with either humans or robots. If you enjoy working with humans, you will have the professionals structure in your investment portfolio, and that attracts high cost.
If you love to work with robots (Robo-advisors), you will answer lots of questions. With your answers, you will be recommended for a portfolio allocation with total monitoring. Working with robots although helps to save cost, requires experience in the investing industry.
To further help you with the discovery, below is a good list of 5 types of investors. Read on to get clarity on your investment personality.
What Are The 5 Types Of Investors?
1. Angel Investors
They are investors that earn above $200.000 in a year and their network exceeds $1 million. They are seen in various sectors but work with first-time entrepreneurs who are new to making a financial investment.
2. Peer-to-Peer Lenders
They are a group of people that help small businesses by funding them. They receive applications or proposals from different startups and invest in those that suit them or have chances of yielding high ROI.
3. Personal Investors
One of the ways startups get finance for their businesses is via family members’ contributions. These are individuals who invest in businesses based on familiarity. They invest in startups but ensure that proper documentation is done.
4. Banks
Banks give out loans to businesses after the application is approved. To get loans from the bank, you must provide worthy collateral. That is their only requirement but their rule remains that you pay within the stipulated time given to you or you lose the collateral completely.
5. Venture Capitalists
These are private investors who give funds to companies that show the potential to grow higher with time. They often invest a stipulated amount of money which is often used when the business shows potential for high growth.
How Do You Know What Kind of Investor You Are?
Qualities or characteristics of the above-listed types of investors will help you to know the kind of investor that you are. The kind of assets that you buy, and your ability to take risks even when it has a tiny chance of bringing you income, help to tell the kind of investor that you are.
If you are yet to discover your investment personality, I will advise that you take the test below. Your answers will help you to reveal yourself to you. Ensure that you answer correctly, if you don’t, your effort will be in vain.
What Type Of Investor Are You Quiz?
1. If the chances of an investment yielding a massive dividend is equal to its chance of collapsing, which of the following is acceptable to you?
a. 15% loss or gain
b. 30% loss or gain
c. 35% loss or gain
d. 40% loss or gain
2. If after you make an investment, the market crashes and the value of your investment drops by 30%, what will be your response?
a. Take the remaining fund
b. Sell part of the fund
c. Watch to see what happens next
d. Invest more fund
3. Whenever you invest your money into a business, what do you think about the most?
a. Safety over growth of fund
b. Investment beating inflation
c. Moderate returns at moderate risk
d. Growth of funds over safety
4. A company you once invested in and lost your fund revived and is showing a high possibility of yielding profit. What will you do?
a. Not mind the company
b. Examine the company for possible investing
c. Buy shares regardless
d. Increase your investment this time
5. You invested about $35,000 in a mutual fund, after a few months you run into debt and need the money to fix things. What would you do?
a. Withdraw all the amount invested
b. Withdraw part of the investment
c. Ask for help from worthy friends
d. Take a loan from the bank
Give yourself points on the following basis:
a. 1 point
b. 2 points
c. 3 points
d. 4 points
Your Scorecard:
If you have 3-5 points, it shows that you are a safe player who avoids the slightest risk. You need to leave this stage to earn more.
If you have 10-15 points, it shows that you are willing to take risks but not too confident.
If your score is 25-34 points, it shows that you are moderately aggressive, and little extra risk does not bother you if returns are attractive. Your tenure is medium to long-term.
If you have 40 points and above, it means that you are a full-time risk taker.
The essence of knowing the type of investor that you are is to help you ascertain if you need to upgrade your investment status to earn more. With the information above, you will be able to know where you belong.
